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Have you and your children had “the talk” – the one about money and debt? If not, you’re not alone. While 69 percent of parents are very concerned about setting a good financial example for their children, more than 40 percent admit to sometimes avoiding talking to their kids about money.
Despite their good intentions, many parents do not know how to approach the subject. They also do not want their children to worry about money. But as they grow up, kids do need to learn how to manage their future finances. Bringing them into some conversations about money early on can help them make smart decisions later.
According to WAND-TV, these six suggestions offer a start on teaching kids what to do – or not to do – regarding debt, spending, and savings:
1. Model responsible choices-
Your children learn the most from what they see you do. Overspending – and then stressing out about credit card bills – shows children that money is a negative and debt is a way of life. On the other hand, if you never mention bills, kids might think money flows like magic. Talk through your choices with your children: “I like these jeans, but we have some expenses coming up. I’d better not buy them today. They might go on sale later. Waiting will also let me decide if I really do want them.”
2. Do not train kids to go into debt-
Children should have some spending money so they can practice using it to reach their goals. Help them prioritize what they can afford: “If you spend $20 at the movies today, it will take two weeks longer to save up for the skateboard you’ve been wanting. The movie might be worth it if it’s an important day out with your friends. On the other hand, the skateboard will make it easier to get to their houses all summer long.”
3. Talk about why you use plastic-
Maybe you carry debt, or maybe you repay any charges every month. To children, though, swiping a debit card or credit card might look like you have endless spending ability. Be sure to explain: “This debit card takes money right out of our bank account each time you use it. For cautious and careful spenders, make sure you write down what you spend in the checkbook & also check your account(s) to see when or how you’re spending, often as you can.
4. Explain the benefits and drawbacks of credit cards-
Approach conversations about debt and credit cards in a straightforward manner. Honesty can help children understand why the family needs to pull together for a solution. For example, a parent could say: “Unfortunately, we don’t have enough cash in the bank to pay for this car repair. We need the car to get to work, so we are going to pay the repair bill with this credit card. The bad side is, we’ll have to pay it back month by month. That means we’ll have to pay more money, called interest, to the bank. We’ll have to be extra careful with our budget the next couple of months. Then we’ll start saving up some money so we don’t have to borrow again next time.” Remember to circle back and note when you have repaid the debt.
5. Teach the difference between healthy and unhealthy debt-
Explain that buying some items, such as a house or car, can require taking out loans, which keep people in debt until they are repaid: “We couldn’t afford to buy a house outright now, so the bank helped us. We pay off a little bit every month. We will eventually own it all, but it will take a long time.” As kids enter their teen years, talk about college, student loans and job earnings. Help adolescents learn to weigh their choices, too. Talk about how an out-of-state university might cost much more than the excellent local one – a choice that might cost hundreds of dollars every month for years (or decades) afterward. Discuss options like earning an associate’s degree first, and working hard on vacations to minimize student loan debt.
6. Build a rainy-day fund-
Starting in preschool, teach children to save part of their income in a piggybank or, as they get older, in a bank account where they can watch the amount grow. Some parents even pay interest or match children’s savings as additional incentives. Encourage them to save for a large purchase themselves, rather than waiting for a holiday or begging grandparents to buy it. And again, model with your own behavior.
Talking about money with your children might feel awkward, but managing money and debt is an important life skill. In doing so, you will see your children benefit from your lessons for the rest of their lives.
